Why Disney, BP and Rio Tinto are exploring ecosystem services

Why Disney, BP and Rio Tinto are exploring ecosystem services

Disney, BP, Rio Tinto and Weyerhaueser represent vastly different sectors. Yet these companies see an increasingly persuasive business case for tracking the impacts and dependencies on biodiversity and ecosystem services (BES).

Simply put, the case for corporate action on BES has solidified, with internal and external dimensions that are more and more compelling. Ecosystem services are essential to businesses, as well as to some 450 million people whose livelihoods depend upon their ongoing flow.

Ecosystem services refers to the benefits that humans enjoy from functioning ecosystems. That includes goods or products that ecosystems produce, and the natural processes that ecosystems regulate.

The internal business case

The foundation of the internal business case is about improving how companies identify risks and opportunities. If poorly done, the result can be project delays and supply chain challenges.

To improve current risk and opportunity identification processes, corporate decision-makers now have the opportunity to expand existing protocols slightly to include assessment of their dependencies and impacts on ecosystem services.

Early corporate pilot testers and adopters say that BES insights can reveal new risks and help to avoid and mitigate impacts. It also can help corporate decision-makers to understand unintended consequences, cumulative impacts and trade-offs. For example, one corporate leader said that an ecosystem services analysis highlighted issues likely to occur in the coming months and years that otherwise wouldn't have been identified, such as saltwater intrusion into coastal freshwater aquifers.

Because ecosystem services is about the benefits that people derive from functioning natural systems, a big portion of this work includes stakeholder engagement around social and environmental issues. Integrating social and environmental factors within analytical frameworks can help to better understand local residents' reliance on the environment and how corporate activities may affect them.

At its best, this work offers another way to maintain industry leadership positions and reputations as investors, competitors and corporate ranking organizations factor in biodiversity and ecosystem services impacts.

A growing list of stakeholders

This uptake of ecosystem services thinking is underway among a growing range of key corporate stakeholders as well as governments, as documented in a series of reports by BSR’s Ecosystem Services Working Group.

For example, more than 16 government agencies around the world either are investing in ecosystem services initiatives or developing related policies. This includes Brazil, Canada, China, Colombia, the European Union, India, Israel, Japan, Nepal, Peru, South Africa, Spain, Tanzania, the United Kingdom, the United States and Vietnam.

It is also clear that the investor and financial services sector is interested in new, integrated and ecologically accurate ways of understanding and avoiding environmental risk. Companies will need to demonstrate robust risk management practices that are in line with investor due diligence and corporate ranking approaches that now include consideration of ecosystem services, such as the World Bank's International Finance Corporation (IFC), the 79 Equator Banks and the Dow Jones Sustainability Index.

Thought leaders, NGOs, academics and other stakeholders are expecting more from companies on understanding their dependencies and impacts on ecosystem services. This uptick in interest is exemplified by emerging NGO initiatives around the world, including in Brazil, China, Colombia, Costa Rica and Ecuador.

For companies, all of this interest in ecosystem services means that a new bar is being set on international best practice. In response, the number of private sector players engaged on this issue is rising, with more than 35 companies publicly naming ecosystem services as an issue under consideration. And more are considering natural capital, as the Corporate EcoForum's 2012 report on the subject documents.

There are also a growing number of touch points between biodiversity, ecosystem services and business risk. It is also clear that BES is coming of age and becoming a corporate risk, with more than 24 nations deploying some form of natural capital accounting.

With regard to operational risk, it is no longer unusual to point out that companies must consider how to maintain long-term access to key natural resource-based inputs, particularly water. Assessing the availability of these resources, while taking into account the ecological and socio-economic demands of users, most effectively will be undertaken in the context of an ecosystem services approach because it highlights system dynamics and tradeoffs.

As companies consider whether, when and how to engage with biodiversity and ecosystem services, they should consider reputational risk. Recent developments elevating this form of risk include the Dow Jones Sustainability Index adding ecosystem services considerations within the forestry sector. The media now also covers ecosystem services, with stories in Bloomberg, the Financial Times and the Economist.

The upside for action include many possible benefits, such as:

• Compliance with new key guidelines around corporate conduct and emerging best practices, such as the International Finance Corporation's (IFC) Performance Standards and the 79 banks that are signatories of the Equator Principles, which specifically name ecosystem services impacts and dependencies as a factor to consider in investment due diligence.
• Preparation for investor questions, new specifications in bidding on projects and inquiries about unintended consequences and cumulative effects. A BES approach can help identify, avoid, minimize and mitigate environmental and social impacts, as well as dependencies.
• Strengthening of internal corporate environmental and social protocols, particularly those related to identifying risks and expanding opportunities, which is consonant with the core business tenet of process improvement over time and maintaining reputation, brand and market leadership positions.
• Improving understanding of stakeholder concerns, which are increasingly manifesting as environmental issues, in the form of access to safe drinking water, healthy local environments and management of stakeholder relations.

Foundation already set

The reality is that within many companies, internal support already is in place in the form of commitments such as:

• Our company will conduct business as responsible corporate members of society.
• Our company will protect health, safety, security and the environment.
• Our company will perform environmental and social impact assessments in line with internationally recognized standards
• Our company will engage neighbors and affected communities in order to identify and manage social impacts arising from business activities, as well as understand their needs and expectations, which can include livelihood needs that tie in with ecosystem services.

So what does this all mean? Begin now. That's a simple message that corporate leaders should take to heart for BES measurement and management.

It will take time for corporate leaders to understand the issues and put in place the tools and processes that mesh with existing systems. Starting sooner, rather than later, offers the opportunity to select, pilot test and refine new approaches in order to make decisions faster and better over time.